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by Finage at May 21, 2021 4 MIN READ

Finage News

Data Analytics: How Can It Improve Financial Decision-making?

 

Data analytics is a field where experts use data to make decisions. Many fields are now using data analytics, including the financial sector. It can be of particular use in finance as it promotes better decision-making. Because most of the processes are automated, data analytics makes it easier for leaders to analyze raw data. Managers of financial institutions will have access to different kinds of data thus allowing them to make better decisions.

 

Data analytics can also help leaders to come up with better goals, and achieve more within a shorter time frame. So exactly how does data analytics improve decision-making? Find out in this article.

 

Contents:

  1. Improving Evaluation of Performance
  2. Making It Easy to Identify Revenues
  3. Providing Customizable KPIs and Metrics

Gross Profit Margin

Operating Expenses Ratio

Net Profit Margin

Current Ratio

Accounts Payable Turnover Ratio

Accounts Receivable Turnover Ratio

Final Thoughts

 

1. Improving Evaluation of Performance

The main focus of data analytics is to provide users with enough data so that there is im[roved decision-making. Understating historical data and getting a glimpse of future trends can significantly improve the position of a financial institution. You can track your performance by comparing previous and current sales. One of the greatest challenges for financial organizations is the difficulty of collecting information from several sources. This can be a daunting and expensive task. However, with data analytic solutions, collecting information from multiple sources is easier.

 

This enables financial companies to predict their performance over some time. A combination of historical data and financial statements can provide enough insight into the performance of a company. It also provides information about the likely variations over a specific time frame. Data analytics also provides users with dynamic analysis. So you can challenge your thoughts and get answers to different questions.

 

2. Making It Easy to Identify Revenues

With data ana; stocks, you can extract information from financial statements and different kinds of balance sheets. So CFOs can access a list of balance sheets for specific dates and monitor if there are any mistakes. Mistakes identified early on can be easily fixed. Data analytic solutions also make it possible for you to compare previous budgets to the current ones. This gives you more insight and will allow you to make a better budget going forward.

 

3. Providing Customizable KPIs and Metrics

Data analytic solutions are equipped to track many important financial KPIs. Some of the main ones include:

 

Gross Profit Margin

This Key performance indicator allows you to track the profit that your company is making. So the costs and revenues are calculated leaving the amount you have made from sales. It also calculates the amount spent on getting raw materials and manufacturing processes.

 

If you have a high Gross Profit Margin it means you will be making more profits from your sales. It is a good indicator of how well your company is doing.

 

Operating Expenses Ratio

With this KPI you can monitor your operating expenses. This allows you to have better control of your revenue. This KPI is measured by comparing your expenses and total revenue. When you evaluate this expense over a long period, it shows whether you are making more profit or spending more of your revenue.

 

Net Profit Margin

Do you want to know how much revenue is being translated into profits? Then the Net Profit Margin is the right KPI to use. This allows companies to track how much revenue is made. If the net profit margin is high you can expect higher profits.


Current Ratio

With this KPI you can check if it is possible to pay for short-term goals. This is usually done over 12 months. The goal is to have a high current ratio.

 

Accounts Payable Turnover Ratio

This KPI allows you to determine how fast you can pay for raw materials and manufacturing processes. When you have a high accounts payable turnover ratio, it means that you pay suppliers frequently. This is a good indicator as it will encourage more suppliers to work with your company.

 

Accounts Receivable Turnover Ratio

This KPI indicates how fast your company collects payments. The essence of this KPI is to show just how good a company is at extending credit. Having a high accounts receivable turnover ratio means that a company is capable of paying short-term liabilities. If it is low then it might be time to reassess collection policies.

 

Final Thoughts

Data analytics promotes decision-making in so many ways. Financial companies have access to information from multiple sources with data analytic solutions. This reduces the tie and difficulty that come with collecting data from several sources. Data analytics also provides financial institutions with different types of data that can be used to compare past and current information.

 

Managers thus have more information at their fingertips to not only make better decisions but to predict future trends. Instead of relying on static reports, you can use the dynamic analysis that comes with data analytic solutions. Quickly generate reports and come up with strategies that will take your company to the next level!

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